Ok, so the title is more for hyperbole than anything else, but this is a topic that I think a lot of people get completely wrong.
So here is the question: If you are in a situation where gas prices keep going up, then do you fill up on gas more often or less often? What if gas prices are dropping?
I was bothered by this back in 2007 and 2009 when gas prices shot up and then later dropped dramatically. When prices went up, people would hold off buying gas until their car was running on empty. When prices went down, people would fill up when their car was at half a tank. Keep in mind that by people, I mean the people in my friend group that in the first instance were complaining about the prices and in the second instance were completely giddy. I have not done a substantial survey, but I will for the purposes of this article assume that is the norm for the country.
My stance is that when gas prices are consistently rising, it is money saving to buy gas as often as possible and when gas prices are dropping it is money saving to buy gas when you are much lower (but still have enough to ensure that you will at least make it to the gas station). Of course, if gas prices are unpredictable, then go ahead and buy whenever you want.
Here is how I conceptualize the issue: first, assume that gas prices are going up regularly. I have a full tank now. If I drive until I am at a half a tank I will fill up at price X/gallon. If I drive again until I am at a half a tank, I will fill up with price (X + N)/gallon, with N being the price difference between what gas was the first time I filled up and the second time I filled up. If instead of doing that, I drive my filled up car until I am at empty and then fill up completely, I will have filled up the entire gas tank with (X+N)/gallon. The increase in cost for waiting to fill up the tank is 0.5N/gallon x the number of gallons in my tank. This is derived by (X+N)/gallon - [0.5(X+N)/gallon + 0.5X/gallon] = (X+N)/gallon - (X+0.5N)/gallon = 0.5N/gallon.
If N is negative (price is decreasing) then additional cost by waiting is actually a savings of 0.5N/gallon.
I drive a Ford Taurus with a 14 gallon tank. Gas is initially at $3.00 a gallon and is going up at a rate of $0.05 a week. My tank of gas lasts two weeks. I start with a full tank of gas. If I gas up every week, then next week I will spend $21.35 to fill it up. The next week I will spend $21.70. Alternatively, if I gas up every other week, then I spend $43.40 to fill it up. I spent an extra 35 cents by waiting that extra week. It works the same was, but oppositely, if the price is decreasing by 5 cents a week.
I do realize that 35 cents does not mean anything, but having so many smart people believe that they are saving money by not spending it on gas until the last minute or saving money by buying gas frequently when it is cheap upsets me.
- Jon
Extra thought 1: Try to think of the cost of gas in your trips not when you fill up your tank, but when you make each trip. Now figure out the cost of a trip to the store to buy a single item. I may do a post on this thought later.
Extra thought 2: Since you pay for gas before you use it, in a world with a flat gas rate, the only time the amount of gas in your car makes a difference is when your car dies and you have to get rid of it. In which case you have wasted money on whatever volume of gas is left in the car. Otherwise, it never mattered if you waited until the last second tp fill up or did so at a quarter or half a tank. Personally, I usually wait until I am at about an eighth of a tank and do not worry about the cost.
